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Chapter 01 - The Role of the Public Accountant in the American Economy

Chapter 01 The Role of the Public Accountant in the American Economy
True / False Questions

1. Independent audits of today place more emphasis on sampling than did the audits of the 1 th century. True !alse

". The American Institute of Certified Public Accountants issues CPA certificates and permits CPAs to practice. True !alse

#. A company is either audited by the $A% or internal auditors& but not both. True !alse

'. The (EC does not pass on the merits of the securities that are registered )ith the agency. True !alse

*. The American Institute of Certified Public Accountants has the primary authority to establish accounting standards. True !alse

+. An annual peer re,ie) is a re-uirement of the AICPA. True !alse

.. /any small companies elect to ha,e their financial statements re,ie)ed by a CPA firm& rather than incur the cost of an audit. True !alse

1-1

Chapter 01 - The Role of the Public Accountant in the American Economy

0. (taff assistants in CPA firms generally are responsible for planning and coordinating audit engagements. True !alse

. The (arbanes-%1ley Act re-uires that auditors of publicly traded companies in the 2nited (tates perform an integrated audit that includes pro,iding assurance on both the financial statements and on compliance )ith la)s and regulations. True !alse

10. Auditing is fre-uently only a small part of the practice of local CPA firms. True !alse

Multiple Choice Questions

11. A summary of findings rather than assurance is most li3ely to be included in a4n56 A. Agreed-upon procedures report. 7. Compilation report. C. E1amination report. 8. Re,ie) report.

1". The (tatements on Auditing (tandards ha,e been issued by the6 A. Auditing (tandards 7oard. 7. !inancial Accounting (tandards 7oard. C. (ecurities and E1change Commission. 8. !ederal 7ureau of In,estigation.

1#. The ris3 associated )ith a company9s sur,i,al and profitability is referred to as6 A. 7usiness Ris3. 7. Information Ris3. C. 8etection Ris3. 8. Control Ris3.

1-"

(tatements on Auditing Principles 4(APs5. (taff support to Congress. Auditing (tandards 7oard. (ecurities and E1change Commission. 7. !inancial Accounting (tandards 7oard. :istorically& )hich of the follo)ing has the AICPA been most concerned )ith pro. A. C.iding. Attestation Engagement.er a period of years are 3no)n as6 A. 1. Accounting (eries Releases 4A(Rs5. An engagement in )hich a CPA firm arranges for a critical re. Is primarily concerned )ith rapid processing of all accounts payable incurred by the federal go. Is a multinational organi<ation of professional accountants. 7. C. Is primarily concerned )ith budgets and forecasts appro. Auditing (tatements of Position 4A(Ps5. =uality Control Engagement.ed by the (EC. Conducts operational audits and reports the results to Congress. 7. (tandards guiding the conduct of internal auditors. Peer Re. 8. C. 8. 8. 1+. C. 8.ernment.ie) Engagement. $o. 1-# .Chapter 01 . 10.ernment Accountability %ffice 4$A%56 A. Professional standards for CPAs.. C. 7. =uality Assurance Engagement. The organi<ation charged )ith protecting in. 8.The Role of the Public Accountant in the American Economy 1'.estors and the public by re-uiring full disclosure of financial information by companies offering securities to the public is the6 A. 7.ie) of its practices by another CPA firm is referred to as a4n56 A. Professional guidance for regulating financial mar3ets. The $o. The serially-numbered pronouncements issued by the Auditing (tandards 7oard o.ernment Accounting (tandards 7oards. 1*. (tatements on Auditing (tandards 4(A(s5.

7. @either e1aminations nor re. Attestation ris3 is limited to a lo) le. Competence. Inherent ris3. C.ices. 7. 8. The attest function6 A. "". Independence. "1. E1aminations& but not re. Relati.ery engagement by the CPA& )hether performing auditing& ta1 )or3& or other ser.ie)s. 7usiness ris3. The ris3 that a company )ill not be able to meet its obligations )hen they become due is referred to as6 A.The Role of the Public Accountant in the American Economy 1 . Information ris3. 7usiness ris3.Chapter 01 . Includes the preparation of a report of the CPA9s findings. Re. >hich of the follo)ing attributes most clearly differentiates a CPA )ho audits management9s financial statements as contrasted to management.ie) of all transactions during the period under e1amination. 8. Is an essential part of e. "#. 8. Re-uires a consideration of internal control. Information ris3. The ris3 that information is misstated is referred to as6 A. C. C.ie)s. 7. C.el in )hich of the follo)ing engagement4s5. A.ie)s& but not e1aminations. 7oth e1aminations and re. 7. A.e ris3. 8. 7.e ris3. Relati. ?eeping informed on current professional de. Inherent ris3.ie)s. Re-uires a complete re. Integrity. 8.elopments. "0. C. 1-' .

ersight 7oard 4PCA%75 as a replacement for the !inancial Accounting (tandards 7oard. Is of similar scope as an audit and adds similar credibility to the statements. >hich of the follo)ing are issued by the (ecurities and E1change Commission. C. The boundaries of an operational audit are often dra)n from an organi<ation chart and are not limited to a single accounting period. Is more li3ely to include tests of compliance )ith la)s and regulations. Industry Audit $uides. Includes a more detailed e1amination of all indi. 8. Re-uires detailed analysis of the maAor accounts. C. C. The operational audit deals )ith pre-ta1 income. The usual audit of financial statements co. 8. >hen compared to an audit performed prior to 1 00& an audit today6 A. :as ban3 loan officers as the primary financial statement user group. 7. ". >hich of the follo)ing is the best e1ample of one of these differences. 7. 8. It restricts the types of consulting CPAs may perform for audit clients. 8.Chapter 01 . 1-* . "+. %perational audits do not ordinarily result in the preparation of a report. It eliminates a significant portion of the accounting profession9s system of self-regulation.ie) of a company9s financial statements by a CPA firm6 A. Is substantially less in scope of procedures than an audit. C. It toughens penalties for corporate fraud. A. >hich of the follo)ing is not correct relating to the (arbanes-%1ley Act. A. C. "*. Is less li3ely to include consideration of the effecti.The Role of the Public Accountant in the American Economy "'. Accounting Research (tudies. 7. It created the Public Company Accounting %. The re. 8.ers the four basic statements& )hereas the operational audit is usually limited to either the balance sheet or the income statement. "0. Culminates in issuance of a report e1pressing the CPA9s opinion as to the fairness of the statements. 7. !inancial Reporting Releases. A. Accounting Trends and Techni-ues.eness of internal control. 7..idual transactions. An operational audit differs in many )ays from an audit of financial statements.

A. The partner in charge of the engagement.er A. A. %nly members in public practice are re-uired to ta3e such courses.ement Act re-uires that management of large financial institutions engage auditors to attest to assertions by management about the effecti.The Role of the Public Accountant in the American Economy " . Efficiency of operations. #0. A. 8. Accounting Enforcement Releases 7oard. #". /embers& regardless of )hether they are in public practice& are re-uired to meet such re-uirements. C.eness of the institution9s internal controls o. 8. !inancial reporting. !inancial statement audits. %perational audits. Public Company Accounting %. Ta1 audits.Chapter 01 . 8. 1-+ . ##. C. There is no re-uirement for members to participate in CPE. C. (ecurities and E1change Commission. 7. 8. >hich of the follo)ing professionals has primary responsibility for the performance of an audit. 8. >hich statement is correct )ith respect to continuing professional education 4CPE5 re-uirements of members of the AICPA. 7. Compliance )ith la)s and regulations. 7.ersight 7oard. Passage of the (arbanes-%1ley Act led to the establishment of the6 A.ices is generally pro. 7. The senior assigned to the engagement. #1. %nly members employed by the AICPA are re-uired to ta3e such courses. The !8IC Impro. Effecti.eness of operations. The managing partner of the firm. Auditing (tandards 7oard. Compliance audits. >hich of the follo)ing types of ser. The manager assigned to the engagement. 7.ided only by CPA firms. C. C.

C. A management fraud may e1ist and it is more li3ely to be detected by independent auditors. 8. >hich of the follo)ing best describes the reason )hy independent auditors report on financial statements. 8ifferent interests may e1ist bet)een the company preparing the statements and the persons using the statements. E1amination. 8. A. 7. Compliance audit. A misstatement of account balances may e1ist and is generally corrected as the result of the independent auditors9 )or3.en by )hich of the follo)ing organi<ations. 7. A.ie). (tate 7oards of Accountancy. 8. Internal audit. %perational audit. The right to practice as a CPA is gi. Audit. C. 7. >hich of the follo)ing terms best describes the audit of a ta1payer9s ta1 return by an IR( auditor.ernment audit. $o.The Role of the Public Accountant in the American Economy #'. Agreed-upon procedures. 8.Chapter 01 . #+. #*. The AICPA. Poorly designed internal control may be in e1istence. . Re. The (EC. A. C. In-uiries and analytical procedures ordinarily form the basis for )hich type of engagement. 1-. 7. A. The $eneral Accounting %ffice. #. C..

ernmental auditing often e1tends beyond e1aminations leading to the e1pression of opinion on the fairness of financial presentation and includes audits of efficiency& economy& effecti. !uture impro. C. 8etermine )hether the financial statements fairly present the entity9s operations.Chapter 01 . A typical obAecti. The accuracy of data reflected in management9s financial records.aluate the feasibility of attaining the entity9s operational obAecti. 7. %ption A 7. Internal control. E.es. C. 7. E.erification that a company9s financial statements are fairly presented.The Role of the Public Accountant in the American Economy #0. %ption C 8.aluation. 8. Compliance. 7.eness& and also6 A. '0. /a3e recommendations for impro. Accuracy. An integrated audit performed under the (arbanes-%1ley Act re-uires that auditors report on6 A. 8.ing performance. %perational auditing is primarily oriented to)ard6 A. C. The .ements to accomplish the goals of management. %ption 8 1-0 . $o. # . Report on the entity9s relati.ided by e1isting internal control.e of an operational audit is for the auditor to6 A. '1. 8.e success in attaining profit ma1imi<ation. Past protection pro. %ption 7 C.

8escribe management9s responsibility regarding audited financial statements. /any people confuse the responsibilities of the independent auditors and the client9s management )ith respect to audited financial statements.Chapter 01 .ie)s in the notes to the financial statements.esting in one of t)o companies.er& only one of the companies has its financial statements audited. 8escribe the e.e . 8escribe )hat creates the demand for an audit in this situation. The (arbanes-%1ley Act of "00" made significant reforms for public companies and their auditors.The Role of the Public Accountant in the American Economy Essay Questions '". 1- .aluate the follo)ing statement6 BIf the auditors disagree )ith management regarding an accounting principle used in the financial statements the auditors should e1press their .estment transaction& and the effect of the audit on business ris3 and information ris3. 8escribe the independent auditors9 responsibility regarding audited financial statements.ents that led up to the passage of the Act.B ''. Include a discussion of ho) audited financial statements facilitate this in. The companies ha. c. a.estor is considering in. :o)e. a. An in. Identify the potential conse-uences to the company of not ha. 8escribe the maAor changes made by the Act. E. a.ing its financial statements audited. '#. b. b.ery similar reported financial position and results of operations. b.

FA !E Difficulty: Easy '. TRUE Difficulty: Medium 1-10 .Chapter 01 . FA !E Difficulty: Medium #. The American Institute of Certified Public Accountants issues CPA certificates and permits CPAs to practice. The (EC does not pass on the merits of the securities that are registered )ith the agency. A company is either audited by the $A% or internal auditors& but not both. TRUE Difficulty: Medium ". Independent audits of today place more emphasis on sampling than did the audits of the 1 th century.The Role of the Public Accountant in the American Economy Chapter 01 The Role of the Public Accountant in the American Economy Ans)er ?ey True / False Questions 1.

. FA !E Difficulty: Easy . The American Institute of Certified Public Accountants has the primary authority to establish accounting standards. /any small companies elect to ha.e their financial statements re. FA !E Difficulty: Easy +. An annual peer re. FA !E Difficulty: Medium 1-11 . (taff assistants in CPA firms generally are responsible for planning and coordinating audit engagements.iding assurance on both the financial statements and on compliance )ith la)s and regulations. The (arbanes-%1ley Act re-uires that auditors of publicly traded companies in the 2nited (tates perform an integrated audit that includes pro.ie)ed by a CPA firm& rather than incur the cost of an audit. FA !E Difficulty: Medium .Chapter 01 . TRUE Difficulty: Easy 0.The Role of the Public Accountant in the American Economy *.ie) is a re-uirement of the AICPA.

The (tatements on Auditing (tandards ha.e been issued by the6 A" Auditing (tandards 7oard. Difficulty: Easy 1-1" . The ris3 associated )ith a company9s sur. Auditing is fre-uently only a small part of the practice of local CPA firms. C. Control Ris3. Re. TRUE Difficulty: Medium Multiple Choice Questions 11. !inancial Accounting (tandards 7oard.Chapter 01 .i. 7. 8. 8. !ederal 7ureau of In. 7. (ecurities and E1change Commission.The Role of the Public Accountant in the American Economy 10. A summary of findings rather than assurance is most li3ely to be included in a4n56 A" Agreed-upon procedures report. Difficulty: Easy 1#. C. 7. C.al and profitability is referred to as6 A" 7usiness Ris3.estigation. E1amination report. Compilation report. 8.ie) report. Information Ris3. Difficulty: Medium 1". 8etection Ris3.

8. C. :istorically& )hich of the follo)ing has the AICPA been most concerned )ith pro. Difficulty: Easy 1-1# .ie) of its practices by another CPA firm is referred to as a4n56 A" Peer Re. Auditing (tandards 7oard. =uality Assurance Engagement.estors and the public by re-uiring full disclosure of financial information by companies offering securities to the public is the6 A. (tandards guiding the conduct of internal auditors. A" Professional standards for CPAs. C" (tatements on Auditing (tandards 4(A(s5. The serially-numbered pronouncements issued by the Auditing (tandards 7oard o. Auditing (tatements of Position 4A(Ps5.iding. 7. =uality Control Engagement. 7.er a period of years are 3no)n as6 A. Professional guidance for regulating financial mar3ets. Attestation Engagement. (tatements on Auditing Principles 4(APs5. An engagement in )hich a CPA firm arranges for a critical re.ernment Accounting (tandards 7oards. 8. Accounting (eries Releases 4A(Rs5. !inancial Accounting (tandards 7oard. 8. The organi<ation charged )ith protecting in. 7.Chapter 01 . $o. C. 7. C. Difficulty: Easy 1. #" (ecurities and E1change Commission. (taff support to Congress..The Role of the Public Accountant in the American Economy 1'.ie) Engagement. Difficulty: Medium 1+. Difficulty: Medium 1*.

Integrity. Difficulty: Easy 1-1' . $" Conducts operational audits and reports the results to Congress. Difficulty: Easy "0. The $o.Chapter 01 . 7. 7. 7. Relati. A. Information ris3. Inherent ris3.elopments. Inherent ris3. 8.e ris3. Is primarily concerned )ith budgets and forecasts appro. ?eeping informed on current professional de. C. The ris3 that a company )ill not be able to meet its obligations )hen they become due is referred to as6 A. Is primarily concerned )ith rapid processing of all accounts payable incurred by the federal go. Competence.ernment Accountability %ffice 4$A%56 A. 7usiness ris3.ed by the (EC. Is a multinational organi<ation of professional accountants. 8. 8. C. Difficulty: Easy "1. Difficulty: Easy 1 . >hich of the follo)ing attributes most clearly differentiates a CPA )ho audits management9s financial statements as contrasted to management.The Role of the Public Accountant in the American Economy 10. #" 7usiness ris3. The ris3 that information is misstated is referred to as6 A" Information ris3. C" Independence.ernment. C.e ris3. Relati.

Difficulty: Medium "*. Accounting Trends and Techni-ues. Difficulty: Medium "#. C. 8. 7oth e1aminations and re. Is an essential part of e. 8. $" Includes the preparation of a report of the CPA9s findings. Attestation ris3 is limited to a lo) le. C. 8. Difficulty: Easy "'. 7.ices. A. C.idual transactions.ery engagement by the CPA& )hether performing auditing& ta1 )or3& or other ser. >hich of the follo)ing are issued by the (ecurities and E1change Commission.ie)s& but not e1aminations. >hen compared to an audit performed prior to 1 00& an audit today6 A" Is more li3ely to include tests of compliance )ith la)s and regulations. 7. Re.ie)s. Re-uires a complete re. Re-uires a consideration of internal control.ie) of all transactions during the period under e1amination. Includes a more detailed e1amination of all indi.eness of internal control. Is less li3ely to include consideration of the effecti. A. $" E1aminations& but not re.The Role of the Public Accountant in the American Economy "". Accounting Research (tudies. #" !inancial Reporting Releases.ie)s. Difficulty: Medium 1-1* .el in )hich of the follo)ing engagement4s5.Chapter 01 . The attest function6 A. C. @either e1aminations nor re.ie)s. :as ban3 loan officers as the primary financial statement user group. Industry Audit $uides.

$" The boundaries of an operational audit are often dra)n from an organi<ation chart and are not limited to a single accounting period. C.The Role of the Public Accountant in the American Economy "+. %perational audits do not ordinarily result in the preparation of a report. It eliminates a significant portion of the accounting profession9s system of self-regulation. C" It created the Public Company Accounting %. >hich of the follo)ing is the best e1ample of one of these differences. 8. Difficulty: Medium "0. It restricts the types of consulting CPAs may perform for audit clients. Culminates in issuance of a report e1pressing the CPA9s opinion as to the fairness of the statements. A. It toughens penalties for corporate fraud. Difficulty: Easy 1-1+ ..Chapter 01 . Difficulty: Medium ". The re. The operational audit deals )ith pre-ta1 income. 8. The usual audit of financial statements co.ers the four basic statements& )hereas the operational audit is usually limited to either the balance sheet or the income statement.ersight 7oard 4PCA%75 as a replacement for the !inancial Accounting (tandards 7oard. A. Is of similar scope as an audit and adds similar credibility to the statements. An operational audit differs in many )ays from an audit of financial statements. C. 7. 8.ie) of a company9s financial statements by a CPA firm6 A" Is substantially less in scope of procedures than an audit. >hich of the follo)ing is not correct relating to the (arbanes-%1ley Act. 7. Re-uires detailed analysis of the maAor accounts.

The managing partner of the firm. A. $" !inancial reporting. There is no re-uirement for members to participate in CPE. Effecti. Efficiency of operations. . 8. C" Public Company Accounting %.eness of the institution9s internal controls o. A. #" The partner in charge of the engagement. The senior assigned to the engagement. C. C. 8.er A.ement Act re-uires that management of large financial institutions engage auditors to attest to assertions by management about the effecti. Passage of the (arbanes-%1ley Act led to the establishment of the6 A. Difficulty: Medium #". >hich statement is correct )ith respect to continuing professional education 4CPE5 re-uirements of members of the AICPA. 7. >hich of the follo)ing professionals has primary responsibility for the performance of an audit. The manager assigned to the engagement. %nly members in public practice are re-uired to ta3e such courses. 7.The Role of the Public Accountant in the American Economy " . Auditing (tandards 7oard. Difficulty: Medium #0. %nly members employed by the AICPA are re-uired to ta3e such courses. Compliance )ith la)s and regulations.Chapter 01 . Difficulty: Medium #1. C" /embers& regardless of )hether they are in public practice& are re-uired to meet such re-uirements. 8. 7. (ecurities and E1change Commission. The !8IC Impro.ersight 7oard. Accounting Enforcement Releases 7oard. Difficulty: Medium 1-1.eness of operations.

Internal audit. The (EC. The $eneral Accounting %ffice.ie). E1amination. Agreed-upon procedures. Difficulty: Easy 1-10 . Difficulty: Medium #+. 8. A.ided only by CPA firms. %perational audit. #" Re. In-uiries and analytical procedures ordinarily form the basis for )hich type of engagement. >hich of the follo)ing types of ser.ernment audit. The AICPA. Compliance audits. 7. %perational audits. C. Difficulty: Medium #*. $" !inancial statement audits. A. C.The Role of the Public Accountant in the American Economy ##. C" Compliance audit. The right to practice as a CPA is gi. >hich of the follo)ing terms best describes the audit of a ta1payer9s ta1 return by an IR( auditor. A" (tate 7oards of Accountancy. A. 7. Difficulty: Medium #'. 8. $o. C.Chapter 01 .ices is generally pro.en by )hich of the follo)ing organi<ations. Ta1 audits. 8. Audit. 7.

The .. 8. C" Compliance.ided by e1isting internal control. A.ernmental auditing often e1tends beyond e1aminations leading to the e1pression of opinion on the fairness of financial presentation and includes audits of efficiency& economy& effecti. %perational auditing is primarily oriented to)ard6 A" !uture impro. C. 8. Poorly designed internal control may be in e1istence.Chapter 01 . Past protection pro. $o. Accuracy. 7. Difficulty: Medium Source: AICPA #0. A misstatement of account balances may e1ist and is generally corrected as the result of the independent auditors9 )or3.erification that a company9s financial statements are fairly presented. 8. C. Difficulty: Hard Source: AICPA # .aluation. A management fraud may e1ist and it is more li3ely to be detected by independent auditors.ements to accomplish the goals of management.eness& and also6 A. 7. $" 8ifferent interests may e1ist bet)een the company preparing the statements and the persons using the statements.The Role of the Public Accountant in the American Economy #. >hich of the follo)ing best describes the reason )hy independent auditors report on financial statements. E. Difficulty: Hard Source: AICPA 1-1 . Internal control. The accuracy of data reflected in management9s financial records.

8etermine )hether the financial statements fairly present the entity9s operations. %ption 8 Difficulty: Medium 1-"0 . %ption 7 C. C" /a3e recommendations for impro. E. 8. A typical obAecti.ing performance. %ption C 8. Report on the entity9s relati.es. Difficulty: Hard Source: AICPA '1.aluate the feasibility of attaining the entity9s operational obAecti.e success in attaining profit ma1imi<ation.Chapter 01 .The Role of the Public Accountant in the American Economy '0.e of an operational audit is for the auditor to6 A. An integrated audit performed under the (arbanes-%1ley Act re-uires that auditors report on6 A" %ption A 7. 7.

• Restrictions on the types of consulting ser. The e.ie)s in the notes to the financial statements. The auditors should e1press their reser. a. b. • Re-uirements for management to ma3e a assertion about the effecti.Chapter 01 . • Re-uirements for auditors of public companies to audit and report on internal control. Difficulty: Hard '#. /any people confuse the responsibilities of the independent auditors and the client9s management )ith respect to audited financial statements.ided by auditors to their public audit clients. c. The auditors are responsible for performing an independent audit of the financial statements and issuing a report on them in accordance )ith generally accepted auditing standards. 8escribe the e.ices that may be pro. b.B a. The statement if false. The maAor reforms made the Act include6 • Tougher penalties for fraud.eness of internal control. 8escribe the independent auditors9 responsibility regarding audited financial statements. @otably including >orldCom and Enron.ersee accounting firms that audit public companies.ersight 7oard to create auditing standards and o.ents leading up to the passage of the (arbanes-%1ley Act include6 • A large number of misstatements of financial statements& many of )hich resulted from fraudulent financial reporting.ations in their report. • The con. 8escribe management9s responsibility regarding audited financial statements. a. 8escribe the maAor changes made by the Act.idence. b. • The creation of the Public Company Accounting %. c.ents that led up to the passage of the Act. E.The Role of the Public Accountant in the American Economy Essay Questions '". The notes to the financial statements should contain only representations of management. Difficulty: Medium 1-"1 . a.iction of the 7ig * accounting firm of Arthur Andersen on charges of destroying e.aluate the follo)ing statement6 BIf the auditors disagree )ith management regarding an accounting principle used in the financial statements the auditors should e1press their . The (arbanes-%1ley Act of "00" made significant reforms for public companies and their auditors. b. /anagement has primary responsibility for the fairness of the financial statements.

:o)e. Identify the potential conse-uences to the company of not ha. The indi. Difficulty: Medium 1-"" . • If the in. The companies ha.est in the company 3no)ing that there is a lo) probability that the financial statements depart materially from generally accepted accounting principles.estor decides to in. The potential conse-uences of not ha. b.ed in relying upon unaudited financial statements.estor is particularly ris3 a. 8escribe )hat creates the demand for an audit in this situation.ing its financial statements audited.ery similar reported financial position and results of operations. Audits add credibility to the financial statements of the company.e .ing an audit are6 • If the in.erse& he or she may not in.er& only one of the companies has its financial statements audited. Audited financial statements do not directly affect business ris3& )hich is the ris3 that the company )ill not be able to meet its financial obligations.The Role of the Public Accountant in the American Economy ''.ol.Chapter 01 .estment.est in the company& he or she )ill not be )illing to pay as high a price because the in.estor )ill )ant to be compensated for the additional ris3 that is in. b.estor is considering in.idual can in. (pecifically& audits reduce information ris3--the ris3 that information used to ma3e the in. An in.estment decision is misstated-related to the financial statements. a. Include a discussion of ho) audited financial statements facilitate this in. a. Audited financial statements facilitate this transaction by reducing ris3 related to the in.esting in one of t)o companies.estment transaction& and the effect of the audit on business ris3 and information ris3.est in the company at all.

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